on chico california, saturday at noon eastern on c-span twos but tv and sunday afternoon at 2:00pm on american history tv on c-span3. working with our cable affiliates and visiting cities across the country. >> next a look at trade deficits and their impact on the u.s. economy. speakers and food -- include former officials from the clinton and george w. bush administrations. by the washington international trade association and is an hour and a half. the everyone, thank you for joining us. my name is kenneth levinsohn, i'm the executive director of the washington international trade association. where delighted that so many of you braved the elements to be here today, welcome also to our friends watching on c-span. today's events follow a series of events on the current trade agenda.

we addressed a adjustment tax, trade with china, and the trade lot schoolbook -- toolbox, all of -- videos from those events are available on our website, www. america's trade policy.com. all of our content as well including our work on the next gen trade initiatives where we are looking at the future of trade and will be hosting a series of events looking at things like 3-d printing, intelligent vehicles, and the impact that would have on trade. as of today's event, we could not have time to too much better. last night the president himself was tweeting about trade deficits and today he will issue an executive order on the trade enforcement and trade -- our mission is to educate about trade policy. it cannot be happier than to have today's panel moderated by my old friend, longtime friends, ambassador peter al qaeda. after the panel's remarks, we will have a discussion and then open it up for questions. with that, peter?

thank you all who successfully braved the rain today. obviously we have a very timely discussion topic today. it is at the very heart of the debate currently about u.s. trade policy. we are very fortunate to have three recognized experts in this area of trade policy economic policy. you have files on them with details. briefly to my left ear is rob shapiro, chairman and cofounder of sonic, llc, a consulting firm specializing in economics, risk, and economic policy. he is also at the georgetown university school of business, and previously served as undersecretary of commerce for economic affairs. his academic credentials include a phd in economics from harvard. in the middle is carolyn floyd,

senior fellow at the peterson institute for international economics. she has previous experience with the world bank, the imf, fed board, and also has a phd in economics from columbia. to the far left in terms of seating is peter murray c, --at the smith school of business. your but the smith effect. i do not know whether peter will reveal that are not. he has been there at the business school for many years. before that he was the director of economics at the international trade commission. he also has a phd in economics from the state university of new york at albany. let's start by defining what we are talking about. there are two parts to the trade balance. there's merchandise trade,

manufactures and raw materials, and there is services trade, kingsway financial services, express delivery, computer-related services, entertainment services, and so forth. last year, the u.s. ran a merchandise trade deficit of approximately $750 billion. the services trade surplus of about $250 billion. basically we had a quote, trade deficit of $500 billion. that trade deficit was not the largest on record. we look over 2000-2016, we had six years and which merchandise had six years and which trade deficits was higher than last year and we had 10 years in which it was lower. we had trade merchandise deficits continuously since 1976. the services trade surplus of

last year also was not a record, it was the third highest surplus that we had had in services. we had a services trade surplus continuously since 1971. in the current political discussion, people who talk about trade deficits are talking about the merchandise trade deficit. fyi, our largest merchandise trade deficit for 2016 were with china, japan, germany, mexico, ireland, vietnam, and italy. if you want to do anything about the trade deficit, cut back on your pasta intake. [laughter] our largest merchandise export markets for canada mexico china japan u.k. germany and korea. love the countries with whom we have the largest merchandise

trade deficits are also countries that are our largest merchandise export markets. the current debate about trade deficits has been framed by the trump administration by their assertion that trade deficits are very important and damaging to the u.s. economy because they indicate jobs that have been lost by overseas countries, foreign countries, largely because of unfair trade practices. we want to look into this issue of the trade deficit and how it relates to trade policy, how it ultimately relates to other factors. as our speakers present their initial comments, i ask them to consider three questions. one, what are the principal reasons for the trade deficit? overall and bilaterally.

second, how worried should we be about the continuing merchandise trade deficit, or its current size? third, what if anything should the u.s. do about its trade deficit? i have asked carolyn to go first. the mic is yours. >> thank you. it's a pleasure to be here. i was planning to walk down here from the peterson institute and pick up a copy coffee at starbucks, but instead find coffee here, so my bilateral deficit was starbucks has now improved a little bit. it would have gotten worse if i thought that coffee. instead i came here and had one. although because of the rain i took an uber here, so now my bilateral deficit with uber has expanded. i'm not really worried about either of these because

fortunately i have a surplus with my employers, they keep paying me for my services. at this point in my life i'm saving. i'm not really worried about these. this relates to the points i will make today. a focus on two things. one that it is the aggregate trade balance we should be worried about, but unlike the fiscal balance which is all about fiscal policy, the trade balance actually has almost nothing to do with trade policy. the trade balance has more to do with fiscal policy than with trade policy. that is one i'm going to make. trade balance is not about trade policy. this has me really concerned when i saw the point in the list they are going to be looking into for what we should be doing about the trade deficit because it was product byproduct,

country by country. this is the wrong approach. a trade deficit is not about those things and that is not a good way to go about looking at it. the other point i will make is that bilateral trade deficits don't matter. this is like my trade deficit with starbucks which i am not to kill you worried about. let's go back and think about what the aggregate trade balance is. it means we import more than we export. how can we do that? how can we buy more from the rest of the world and we still more to the rest of the world? only one reason. we are borrowing. this is why i am saying it has much more to do with borrowing and lending, with investment, with spending and output than it has to do with trade policy. by definition we must be

spending more than we are producing if we are running a trade deficit. the trade deficit is currently $500 billion or about 3% of gdp. what are the causes of this? one of the causes is fiscal policy because we have been running a fiscal deficit. if you really are concerned about the trade balance, it is important to not expand the fiscal deficit because then the government will be absorbing more. it has to come from somewhere. some of that will come from abroad and it will expand the trade deficit. fiscal policy is actually super important for the trade balance. what's happened over time to cause this trade deficit to rise? some blame chama. if you look at consumption since

the 1980's, consumption of gdp has increased from about 2% to about 68 percent now. people are consuming more. kind of a good thing. that is the reason we are running a trade imbalance. we are exhorting more than we are producing. that is the result we are running a trade deficit with the rest of the world. i will say it has something to do with the exchange rate as well because the exchange rate, the real exchange rate, is the price of our goods for other goods. because the dollar is the world's currency, there have been periods where the dollar is overvalued and there may be currency manipulation by china

, though that is no longer a problem. that means our exports are more expensive to the rest of the world and imports are cheaper. that can contribute as well. what is missing from this list is trade policy. increasing a tariff is not going to affect the trade balance unless it is somehow about savings or investment. unless it is a high tariff, it is not going to affect savings and investments. we don't know the directions it would take because it could increase, decrease, or have different effects. the right tool isn't about trade policy, but about saving or investment.

the problems with aggregates a drag on growth. it is a problem when we are growing slowly and the rest of the world is also glowing -- growing slowly. some of our growth is being exported and since trade is heavy in manufacture, industry we continue to lose manufacturing jobs. the biggest culprit for lost jobs are tech knowledge he and automation and manufacturing is a share of employment has been in decline since the 1960's. there is no sudden change in that if you look at it. there is also some benefit. we get cheap goods. we have the consumption boom. in addition to finance investment, that is good for the u.s.

foreign firms pay higher wages as well. foreign investment is good for u.s. growth and jobs. the real concern with the aggregate trade balance isn't the deficit, it is the sustainability over time. remember, we are borrowing. every year we are borrowing from abroad and that is adding up. so if i was buying more than i was earning, i would be accumulating debt. at some point no one will want to lend to me. that is the concern with running deficits year after year and running the net external deficit position is 45% of gdp in the u.s.

we owe 8 trillion dollars in external debt. it is the highest of any country ever. as a ratio, we are a big country. it is not so bad. my colleagues have a book coming out in the next month on currency conflict and they know that it is around 60% of gdp where countries have problems. countries like portugal, greece, or spain passed that before they ran into problems. the real problem is sustainability. it is growing debt over time. it is not about trade per se. let me give you words about the bilateral deficit. some countries have stuff we

need and like, like starbucks coffee that i like. saudi arabia has oil. we will have a trade deficit with saudi arabia. supply chains are another reason we have deficits. we have a great supply chain with mexico where they are part of the components of things we need or assembled products that we need parts from and that is something we need in the whole rolled. germany has a huge trade surplus, but they have trade deficits with their low-cost suppliers like czech republic and hungary and so forth and big ones in the auto sector. car companies benefit from cheap imports just as we benefit from cheap parts from mexico. to wrap up, what should we do?

one, the fiscal deficit as a problem if we are worried about accumulating debt over time. we need to rain that in or limit it. there are things we can do to save more. oddly, the brady-ryan tax plan is not a border adjustment tax to rein in the tax deficit. that has problems. switching to a consumption that may help because it encourages saving. it really does not come from anything about it order adjustment tax. the exchange rate, there are things we can do with the exchange rate. one proposal by john williamson emphasized by my colleague joe gagnon and fred bergsten as we

mentioned before is to allow intervention in the currency market to balance. what china is doing is supporting their currency while they are running a trade surplus. that is ok. what we don't want to see countries doing is intervening to weaken their currency and running a big surplus. that is not ok. that is another kind of agreement you could imagine. with the bilateral deficit, they are mostly political. you talk to countries one on one. you hear about u.s.-china, u.s. russia, u.s.-mexico relations. that is the wrong approach. some countries have things we need. we should focus on the aggregate trade deficit if we are worried at all, but trade policy is not

the answer. i will stop there. thanks. >> thank you very much. peter, will you pick up the mantle? >> this may be the only time any of you get to see me on the left. [laughter] did you plan this? >> i thought you would enjoy being there for a change. >> reminds me of a dinner i had at the afl-cio in any case, i guess my views are very different than the previous speaker. it is an identity that a trade deficit equal save benefit. one can say we have a trade deficit as we have a saving deficits. i could run causality in the other direction. if i wanted to debunk the trump administration, that is what i would do. people are wondering how brexit

happened or trump happened. i never endorsed donald trump and i and not here to defend his policies. if i was worried about the economic bomb, i would certainly make at argument. to focus on my argument, it is true that the current account of the sit has to equal net capital influx. because we have a current account deficit, we have capital inflows or i could build an argument in either direction and use reasonable economics to accomplish that. in my mind the trade deficit is the result of a combination of the technological forces driving globalization on one hand and mercantilism and nationalism on

the other hand. we have a rules-based international trade system which i much admire and feel is sorely threatened. international trade law -- and i have written about this, and i read books other than those published at my university, is remarkable in that it is the most economically informed aspect of law along with antitrust. it is almost as if the economists were sitting at the feet of the gods being the lawyers that write these documents. and it's conceived from the notion that it brings together groups of market economies for the purposes of tradeing comparative advantage. things like exchange rates will adjust to ensure that the outcomes when we teach

comparative advantage will indeed happen, that trade will be balanced, that employment will be full, that most importantly that adjustment takes place. when you remove trade barriers workers effectively move from one kind of employment to another maybe with some disruption and requiring some assistance but they are not permanently displaced from the labor force. in reality we have to recognize a couple of things. one is that most of our trade deficit is with china, 60%. of the balance, germany is important and japan has been important and continues to be. if you solve the trade deficit you probably have solved the problem. to move away from that for a moment, if you have a system that's based on the notion that

markets will prevail and that trade will balance out then when you have three of the four largest economies, which constitute more than half of trade, operating on the basis that it is a matter of public policy that we should run a trade surplus, that exchange rates should be manipulated to that effect. there are a variety of ways to cause an exchange rate to be under valued then the system can't work. so we have to look at trade policy among other things to determine why we have a trade deficit. not just our trade policy, but theirs. it requires fundamentally an open mind about these issues. it causes us to think in ways that are contrary to what we have put up on black boards.

i like to tell my colleagues it -- pure competition is where children learn about markets. it is a beginning but it's not an end. story is not in the assumptions we make about free trades, but in the violation of the real world and whether they have consequence. all of our models have violation in the real world. the question is, do the violations have consequence? now, in our case we have had a profound failure to adjust. we have had people who have left the labor force completely for no apparent reason other than they feel discouraged. we have 7 million men between the ages of 25 and 55 unemployed and not looking for work. alongside of that part of our fiscal deficit finances a program that can imply effective marginal tax rate. 55% for going to work. after all, with obamacare in place, with the food stamps

program modified as it has been, a healthy male 25 years of age sitting at home watching espn is eligible for free health care and food stamps and can never have to look for work. it is reminder of some of the northern european countries and allowing kids to go to school for ever in getting a stipend to do it. of course that is gone now. we need to talk about specific policies that have effect on behavior. so i am saying that the trade policies have something to do with this deficit and the way we spend our money. that said, the consequences for the trade deficit are profound. the amount is great. i think looking at some magical

number is silly simply because we will probably pierce through 60%. we have the ability to print money.orld's the melt down will not happen the way it did in greece because greece can't print money. greece needs euros to pay its debt. our debt is denominated in dollars. our meltdown will come that not private actors but central banks don't want to hold our debt because they hold a great deal of it. when the american public doesn't want to hold it, that's when we'll have a problem. we will never have the problem of not being able to come up with currency to pay for it. we can always print it. it will be an issue of when do people demand such high interest rates that it makes our federal budget, you know, unsustainable. it throws us into a black hole

of a kind we have never seen. we have never seen the principal reserve country go bust. we don't know what it looks like. this is like mr. summers saying every financial crisis has a long period of adjustment. when was the last time we had a financial crisis like 2008? one must have observations to draw generalizations about the past. i would suggest to you we have no counter intuitive here. we have no other examples. we don't know what it's really going to look like. we know probably it will not be nice, that it will take a long time to recover. the immediate effect of people not working is to have a lower gdp. i find it absolutely absurd that we shouldn't expect if we resolved our trade deafficit not to have more manufacturing jobs.

well, we know in manufacturing and import industries that workers are more productive than they are in domestic disputes. this is an observation in other economies. we would have more aggregate demand. more would stop watching espn and go to work. how many would deal with how we dealt with social programs? it takes a powerful incentive to get one of these guys off the couch. if those were removed, they might get off the couch more easily. shifting employment would raise gdp and most of the manufacturing, a good deal is done by manufacturing activities. now, i would point out that a

lot of it has followed american manufacturing abroad in response to trade barriers. for example, consider the situation in china. a good way is to promise to move more activity over there. it just happened with apple. to not enforce foreign corrupt practices. i would be very eager if i could actually get the justice department to do what i wanted to be at least investigating the e-mails on that. people have become very good at avoiding prosecution if they know in advance they have to avoid prosecution. the people that get people like general motors in trouble is

somebody going into business and -- for themselves, getting passed up and so on and so forth. now, how do we get out of this mess? gdp -- we have been growing at 2% a year. to say it's due to productivity growth is to not ask the basic question. why has productivity growth gotten so much smaller? does it having something to do with trade deficit? i think it does have something to do with the contraction of manufacturing. i think it does. i find it ridiculous when i hear arguments from northwestern that say all of the good stuff has been invented. i guess he has not been reading about robotics rid and then there is the great one. then what would you rather have, this, you know, or a flushed toilet? i'm old enough to have used an outhouse. i'd rather use this. i can keep an outhouse and use this. this makes me so much more productive and provides me with so much more freedom of movement during the day.

i don't have to be near a telephone all of the time and so on and so forth. remember that woody allen movie were he pays a character to call his office to tell him where he will be at every 15 minutes and diane keaton said you forgot the tell him about the payphone you'll be passing down the street. that's what my life was like. i don't work at just a large institution. i work at a mega institution which means i work alone. i was always telling people where they could find me. i think we need a grand bargain on exchange rates. we had one before. this time a grand bargain on exchange rates would have to include china. china is not going to play by the rules on this sort of thing. i don't think a grand bargain is possible. that would help us get out of this mess. so it does come back to what trump talked about during the campaign.

i would also point out that romney talked about the very same things when he was campaigning, but didn't attract quite the same ridicule. let's face it, donald was kind of a hard guy to like. he is not very politically correct. there is something else going on. we are now at a moment in time where people say that universities are becoming closed spaces with closed minds. that is indeed happening. the economics profession is not even willing to cast doubt on what they have been prescribing for the last 50 years because of events like brexit and trump. they don't want to open their mines. to me it is the greatest barrier to finding a solution. we are going to have to deal with china very different ways than say please sign this agreement and comply by these rules because it simply won't happen.

thank you. >> thank you, peter. i must admit, i never expected we would be talking about the relationship between outhouses and productivity today. [laughter] i don't quite understand the connection with the trade deficit, but i'm sure we'll get to that later. no. no. ok. rob. mr. shapiro: thank you very much. thank you to wita and my good and old friend kim leavenson for inviting me. do trade deficits matter? that's easy. the answer is yes and no. what's harder is the precise ways extent and conditions under which trade deficits do and do not matter. let me dispose of two of peter's non sequiturs. first of all, trade deficit is not about poor people and whether we provide health care for them. let me also say that we have had about 20 financial crises since

1975. yes, we have a rich data set to understand how advanced economies respond to financial crises, to defend larry, who is an old classmate of mine. a trade deficit or surplus is simple. -- a symptom. as in medicine, here we should focus on the underlying policies. for example, a trade deficit can be a symptom of quite positive developments. similarly it allows us to consume more than we produce including more investment. when it happens with full employment and strong productivity arising trade imbalance presents no downside. that was my regular narrative when i used to announce the

monthly trade figures which is to say the monthly trade deaf it figures in the midst of the longest boom in american history when i was under secretary of commerce. under other conditions arising trade deficit signals negative development. it may signal the companies are falling behind their foreign counter parts. more commonly the negative effects arise by financing. we have to pay for our imparts. -- imports. when we import more than we export we have to pay the net difference by selling dollars to purchase the currencies of the foreign producers because that is the currency they want to receive payment in. that leaves foreign companies with dollars they can only spend here. they can use them to buy stocks, real estate and other financial

aspects. the negative here is those foreign investors take home the capital gains they earn from their investments here. more immediately, however, those foreign purchases also increase our supply of capital, which in turn tends to lower or interest rate. as an economic matter the capitol flows indicates in jobs. certainly it would be better to finance those additional investments. we would be worse off if they didn't happen at all. an untutored president slapped tariffs on those with trade surplus with us. it usually focuses on jobs, not on growth and investment.

trade certainly cost some jobs especially jobs between economically desperate companies. it is opposed to trade deficits or surpluses between the united states and other advanced countries. jobs are lost at companies that are least competitive with foreign producers. usually in industries that can operate it is cig thif cantly -- operate in countries at sick difficulty less cost. that's why it happens in trade between disparate types of economies. that's what offshoreing is all about. when trump and his allies

announced trade deficits, we should remember more than half of u.s. imports are what are called related party imports. that's when a company here imports parts or goods from its own foreign subsidiary. it is a transfer within the company. it is half of our imports. it is also 30% of our experts. they involve transfers in the other direction between u.s. and foreign parent companies here. trade also creates jobs that operate here at less cost or higher quality than elsewhere. so trade moves jobs here as well as investment. from industries that are not comepetitive to those where we are cost competitive like advance manufacturing and many services. inevitably these developments cost some americans their jobs. we should help them with greater access to the means to retrain and if necessary relocate. we can do that without undermining our strength as the

world's most open economy. let's briefly consider how many manufacturing jobs have been lost to the scale of manufacturing jobs lost to global trade. one famous study found our trade imbalance with china from 1991 to 2011 cost 2 million jobs, including one million in manufacturing. today 12.4 million americans are employeed in manufacturing. that's 10% of all private employees. add another million and it rises to 10.8%. compare that to the 1960's when 25% of employees worked in manufacturing or the 1970's when they made up 20% of workers. this signals that trade deficits have had little to do with most of the decline in u.s.

manufacturing jobs since manufacturing's large decline happened when we are running trade surpluses, not trade deficits. there is no direct relationship between trade deficits and people's incomes or living standards. from 1965 to 2000, manufacturing share of gdp fell from 25% to 16% while real per capita doubled. rising productivity relays on workers skill. trade generally promotes higher productivity in at least three ways. first it shifts capital and jobs to more productive uses. second, it provides access to

the best ideas developed abroad, which we can use and some times improve on. the iphone that peter held up is an example of an sfri where the u.s. is now the world leader. we didn't invent the cell phone, the commercial cell phone. the finns did. we took their goods and improved them. that's because we have an open, global economy. lastly, trade puts competitive pressure on u.s. companies to innovate and become more efficient. i want to close for a minute by thinking about trade deficits in a more general way. the trade deficit is how much we consume by how much we produce. so a country's trade deficit

arises from that country's own saving investment and assumption behavior and not from the hartariff policies of other countries. those policies do effect our trade deficit we fefected especially those that concern exchange rates. since countries change in their -- trade in their own and everyone else's currencies, policies that affect the relative value of those currencies, that is there exchange rate, matter. policies that effect the relative value of those currencies, that is their exchange rates, matter. it is said hours reflects china's program to keep it under value relative to the dollar. they have little, if any, impact on the saving of americans and

that's what determined our trade deficit. in any case, we saw that two decades of currency manipulation by china had only a marginal effect, even on the share of manufacturing jobs in our economy. in the end, my best counsel is to remember one thing. trade is not an adversarial phenomenon. it involves voluntary exchanges. no one forces anyone to trade with anyone. people trade and it only occurs with both sides benefit. so let it happen. mr. allgeier: thank you very much to our panel. we'll open it up for questions in a little bit. i'd like to continue the discussion among the panelists. you know, for most people, getting lost in the details of

the balance of payment statements isn't what they're worried about. what they want to know is do trade deficits go with less employment and less economic growth in the united states? so i mean, rob, you had said when you were undersecretary and putting out the monthly trade deficit figures, it was in the midst of an economic boom. what does economic research and history tell us about relationship between trade deficits and economic growth or trade deficits and overall employment? anybody who wants to. ms. freund: i was going to say that recently i tweeted a picture of u.s. growth and u.s. trade deficits and the correlation is close to zero. not significant. and exactly for the reason that was stated, that in really good times, you have high demand and you might import a lot.

you might even be importing intermediates to go into production to help you be more efficient. in good times you run trade deficits and they help to slow your growth so you don't overeheat. during bad times when you're running trade deficits, there may be some cost. we do need to recognize that. it is a drag on growth. but over the long history, there is no correlation between growth and the trade deficit. mr. shapiro: let's just think about our own lifetimes, or the lifetimes of the older ones in this room, like me. you know, we had the lowest unemployment and the strongest growth in the last 60 years, in the 1960s and 1990s. in the 1960's we were running trade surpluses and in the 1990's we were running trade deficits. which just is an illustration of caroline's point.

it's not to say that there aren't elements underlying trade deficits or surpluses that affect growth. of course there are. but they work in both directions. as i pointed out for example, the trade deficit increases the supply of capital in the united states, which in turn, lowers or -- our interest rate, which in turn tends to increase growth. we know there are some negative effects on growth. there are also positive. in economics almost all phenomenon work in both directions. mr. morici: i think that the notion that we've had a lot of growth with trade deficits and poor growth with trade deficits and the reverse and so on and so forth, only illustrates my original argument that we have a

lot of identities and it's easy to grab an identity and then draw an arrow in one direction or another. with regard to the most recent trade deficits we have to look at how markets function and how political entities have responded to those markets. in recent years, with china's entry into the wto, and increased imports from china, people have been displaced. i don't think anybody can deny that people have lost jobs because of increased imports. the question is what happens to them. many have dropped out of the labor force. or their successors who would have taken those jobs have not participated in the labor force or to the same degree. that's a labor market adjustment problem. now, we also have to consider how government entities have responded.

there's been a substantial increase in the safety net to assist those people. and although the government has tried its hands at training them, it hasn't been very successful. if we have a situation where we have more imports, people lose their jobs, but they don't adjust. you are going to reduce the gross national product and you are going to reduce growth. i didn't shake my head while you were speaking, i was kind enough not to do that. >> thank you. >> i understand it's hard to have an open mind about this. it's very difficult for me, when you realize that i wrote a book called making free trade work for the council on foreign relations and it's how i became a tenured professor. but i have to recognize that some of these things haven't worked out as they should. if i was sitting on a panel with trumpsters i'd be taking a different approach. for example, it doesn't warm the cockles of my heart they're taking aim at mexico. in my view, the trade deficit

with mexico has a lot to do with the mexicans doing smart things. for example, they had developed a network of trade agreements with other major trading partners such as the europeans, which permit them to be a very effective hub for manufacturing automobiles, for example, to be exported to all parts of the world without duties. our problem with mexico has been that they've been smarter than us about exploiting free trade in the ways the textbooks say they should. our problems with china are the reverse. it's very easy to say in a world where you work on a black board and end countries with end factors and no one is very large, no one can influence prices by themselves that the trade deficit with one country doesn't matter or their industrial policies don't matter. and to say that, you know, the

equilibrated process will raise incomes. there's a reason that elections have been coming out the way they have. and it's not just trump's non-plurality victory. the democrats, you know, have won -- hold less than 20 of the governor's seats right now. something's going on out there. the reality is the policy of the last two administrations has been to not do very much about chinese mercantilism but to provide social programs to compensate these people. and that has not proven enough. my friends on wall street who now will run this administration and will decide ultimately what our trade policy will be, mr. ross and mr. navarro will be adequately frustrated i'm sure by the goldman sachs crowd. i doubt they've looked at the boarded up windows and opioid

abuse. that's a real part of america we don't see in the wealth of new york and san francisco. but adjustment, labor market adjustments haven't worked in those places. we have to ask why. we have to ask why. because it is a very maldistributed outcome that is occurring. my view is this is not healthy. we could slip into orartarky and that would not be a good thing either. in order to discuss this you can't constantly back down to to totologies and identities and not address what it is that china does to particular markets in this country. failure to do so is problematic. i know you want to respond.

[laughter] mr. allgeier: i am really struck by the fact at how little faulty trade policies on the part of the united states have been identified as the problem. with the exception of concerns of certain things about china, and yet the debate -- [ inaudible question ] is, the trumpg dialogue is faulty trade policies on the part of the united states and by that, they mean tariff liberalization agreements. you're on the opposite side saying smart countries do more trade agreements. and no one here other than talking a little bit about china, has said there's this whole decades long failure of u.s. trade policy. but let caroline and rob respond to your comments. ms. freund: i just want to say, i'm really concerned about blaming trade for the labor adjustment problems in the united states.

so it is true trade played a small part. so even if you take the study, which actually doesn't look at it in general equilibrium, it looks at the affect on china on manufacturing, they find it's 17% of the total lost jobs since 2000. more than 80% of the manufacturing jobs lost were for other reasons. and the reason i'm concerned about this, is because it's so easy to blame the foreigner and not take any blame on ourselves and our own policies. the future of work is different. we have developed machines that do things differently. there are not jobs for the high school dropout or just high school educated who wants to go directly to a factory and is unskilled. even in the manufacturing we do. look at the factories. there are people wearing these very protective suits because

everything has to be done in a clean environment and they have to have some education to run the new types of machines. it is a different environment out there. and we have to recognize this. but i'm really concerned about the xenophobic, it's all trade. it's easy to blame the foreigner and it's not our own fault. applause] and saying that adjustment, that the u.s. has done so much adjustment and that's why people aren't in the labor force is absolutely insane. europe does way more than what we do. that's why people don't object to trade in the way they do here. but we need to do adjustment for everything because otherwise trade and outsourcing take the brunt of the blame when, really, it's just the future of work is changing. and we have to address this. i absolutely agree, we have to address that people are sitting on their couches and taking

drugs. but partly they're taking drugs because they did back breaking work for many years. we got rid of those jobs. that's a good thing. that is a good thing. >> i'll give rob a comment then i'd like to go to q's and a's from the audience. mr. shapiro: right. much of what i was going to say caroline has said. but i want to make one other point. when peter says well, if you have a phenomenon, a bilateral trade deficit that cost someone their job, shouldn't you do something about that? well, of course you should with labor policies. but that also fundamentally ignores the other side of it. which is to say that trade deficit represents the ability for american businesses and individuals to consume those goods at less cost. than if they were manufactured here.

and that allows them then to buy more things. made by americans or made by foreigners. which drives growth. this is, you know, to ignore all of the benefits of comparative advantage driven trade. is really -- provides i think a very partial and somewhat distorted picture. >> ok, thank you. i do want to go to questions and answers. so raise your hand. we've got mics roaming around. and when you ask the question, please identify yourself and your affiliation and ask a question, please. >> i'm going to add, if folks could also not speechify with your question and ask a question to the panel, we'd appreciate that. >> ok. >> thank you, manchester trade.

i can't remember what copy machine i'm supposed to associate with peter, i think it was xerox but i'm not sure. but we loved watching you when we thought you were the most successful trade person when we saw you on television actually saying something that people listened to. good seeing you again. my question actually is a very simple question. this is way over my head so i'm learning. the question is, i always thought that the reason we were able to run trade deficits were because we printed money. and the chinese have now gotten wind of this, so they keep talking about displacing the dollar and using the dollar more. can you explain the relationship between our ability to print the money and whether we abuse it or whether it's good or bad and in relationship to the discussion of the causes of the trade deficit? thank you again for a very educational 40 minutes. mr. allgeier: who would like to take on that?

let's keep the answer short so we can get more. mr. morici: other central banks, central banks that don't have a reserve currency, most fundamentally don't back up their money with gold anymore. they back it up by holding u.s. currency and u.s. bonds. for the purposes of international financial dealings, bonds are as good as dollars. so as long as -- this will always require us to have a small trade deficit. we sort of provide the liquidity behind the growing money supplies that grow with the economies around the world. we'll always by printing -- as long as we are the predominate world currency, somebody like venezuela that's maybe not a great example. say mexico will hold dollars at their central bank to back up the peso. there is some relationship there.

does that answer your question, steve? >> not at all. [laughter] mr. morici: i tried. you see, the economists are most correct when they're least understood. >> steve wanted to be told how he could print money. [laughter] let me just say one thing and this may clarify it in part. the reason it works is the united states remains the largest and most productive economy in the world. and consequently -- and produces the highest returns of any advanced economy. and consequently you accept dollars because you have confidence that you can invest them and get a sound return from them in the united states. mr. allgeier: ok. got a number of hands up, please.

ok. >> mine's actually pretty quick. bill lane, right now i'm not affiliated. nafta and the 18 countries where we have free trade agreements. if you look at 2015 you put the numbers together, trade's in balance, slight trade surplus, you add in services. all in all, half exports going to 400 million people in those countries. and that's by any measure a pretty good return. peter makes a great point on china. half of our trade deficit. it's going to be in the news next week. no country in the last century has invested more in infrastructure and education than china has. in fact, if there is a trade war, the first casualties from a u.s. perspective could easily be agriculture and universities because of the number of chinese students studying in the united states. what can we learn from what

china has done right over the last 20 years? as we prepare for the visit next week. ms. freund: i would just say infrastructure and education. so these are two things that we have clearly not done well. you can see it as you drive anywhere in the country or at any airport you arrive into. and infrastructure, obviously, promotes growth. it makes trade within the country much easier. and education. going back to the person who gets out of high school and needs a job, we need to train them in a way that there's a job that's waiting for them. and i think that the investment, especially in those two categories, infrastructure and education, is what we're missing. and what china and other countries around the world are doing. >> yeah, as the educator here, or former educator, i taught my

last class in march. i am now emeritus. well, i'm at the tender age of 68 i started teaching in 1970. i thought it would be a nice time to pass the baton. i don't think any academic campaigned harder for nafta than i did. i wrote about it while i was at the university at maine. i lived here while i taught there. peter met me that way. every weekend i would leave maine on a wednesday and go give a speech someplace. return to washington on the weekend to see my family, then go back to maine. those speaking gigs provided the airfares for me to have that commuter marriage. no one really campaigned harder. was --my basic instincts the problems ross perot talked about. it really will. that's a good thing. american education needs a good boot in the behind and parents

will be screaming at schools to finally do better. i mean, a high school education in new york state today and even when i was a boy, was not like the high school education my father got. and we really needed this. the reality is, we send more than half of our children to college now and colleges aren't doing their jobs. one study shows something like 40% of graduates can't do critical thinking. a lot of the college graduates working in starbucks are operating at their full skill level. they look good, smile, sound educated. how educated they really are? i don't really know. i'm starting to doubt it. they certainly aren't prepared to live in a world where hold your breath guys, if you live 20 more years, i hope to be 88. the dentist filling your cavity may well be a robot. that is indeed, really possible. in that environment, the kinds of work that's going to be

available and the countries that are successful, is going to be very high skilled and the countries that are going to be successful have a population of working age people between 25-70 who can run those robots as opposed to, you know, serve coffee. and i don't know that we're doing what we need to do to be a really successful society. i don't know that we are going to be the most productive economy when we meet again in 20 years. the chinese may very well be. they understand something that we have lost sight of. there is no substitute for being competitive. as an individual, as a company, and as a country. and thinking that the solutions to problems to spend, you know, 60% of your budget on social welfare programs to ameliorate the effects of being displaced. to go around the country and say you have a jobs problem, it's no fault of your own and the

government is going to solve it. the real problem is a maldistribution of income and things is a mistake. mr. allgeier: we need to get moving on. my dentist is kind of a robot. anyway. [laughter] i hope he's not here. [laughter] questions? >> real quick, y'all agree that trade deficits aren't the key matter. why is it then, what does the administration hope to gain by making as we learned yesterday in stuart vaughan's letter to the hill, the draft, the leaked draft, that the focus is going to be on the trade deficit, the goods deficit with mexico? the nafta negotiations, that's the first item of approach, that's the most important item and then they go on to other things. what do they hope to gain by that? mr. shapiro: headlines. political advantage. particularly among the

president's core supporters. the fact, you know, the -- it is, i think, as today's discussion has shown is the wrong focus. it will not help any of the people who -- in old industrial towns and those towns who have lost their jobs. but this is a piece of political capital. and it allows the administration to talk about something other than than what the press wants the administration to talk about right now. mr. allgeier: dorothy? >> hi, dorothy from microsoft, thanks very much for your comments. everybody's in violent agreement that a good trade policy has to also be partnered with a very robust, broader economic agenda.

we're part of the services industry, the data on services isn't as good as it should be. but we also know that the u.s. runs a surplus around the world. a lot of countries are saying, i have a deficit in services. what should i do about it? there's a little bit of a demonstration effect that i think is kind of lost on the trade deficit debate. i'm just wondering if the speakers might want to comment on that. because, i mean, i don't know that companies can do more than they're doing as we are on redefining the work force and we've been pretty out spoken on training and stem and all those things. it needs a good trade policy because we're a global country, we're all around the world. ms. freund: that is a great question and something i had in my initial comments and i

thought -- and i left out by mistake. we have -- we are extremely competitive and -- trade surplus like manufacturers, where trade -- trading goods tend to have higher productivity and pay higher wages, are traded -- our traded services are exactly the same. they're even better than the trade of the manufacturers, some -- companies like microsoft etc. hook for the long time -- i remember in 2000 the first time i wrote a paper on the current account deficit when we were concerned about it then, services was the miracle that was going to save us, because that would continue growing and deficit.e manufacture it is not quite happened yet. i think it could happen, but this is precisely why we need trade agreements, because we need companies to open their service sectors to the extraordinarily competitive u.s. services exports.

that was actually where the biggest gains from tpp whatever come, from the transpacific partnership, is services. understudiedit is as the data is not as good, and actually we do not even know how valued, because so many services are afraid. even when you buy manufacturers now, a lot of what you are buying is services because there is this data flow and maintenance, things like that, contracts that come with it. services is an incredibly arertant part, these jobs just as important if not more to the future of this country than manufacturing jobs. on what caroline just said, the way in which --de statistics are deducted if an automobile comes in from germany, the entire value is counted as a manufactured good.

oecd, they look to trade and broken down by value added. as carolyn was saying, and airplane that comes and has a lot of services embedded in it, whether it is engineering services, accounting services, computer-related services, whatever. oecd did this multi-country across the economy's study and said, if you look at the value added of trade, where's currency, the way it is done through customs said that about 23-20 4% of world trade was services, when you do the value-added approach, it is something like 48% of world trade our services. other questions? someone in the back, then the middle. >> hi, politico.

i came in a little late so i do not know if you talked about this new executive order that trump is signing today where he is basically going to direct ustr in the commerce department of theine all significant bilateral trade deficits to determine what their causes are. i guess that will provide him the ammunition that he needs to go after these bilateral trade deficits using whatever trade remedy tools are at his proposal -- disposal. could youred, come -- comment generally on that idea? that that is an effective approach to trade policy, by trying to examine the causes of the bilateral trade deficits, all these countries? more generally, what do you that the the odds

trump administration is going to have a significant make a significant impact on the order of -- overall trade deficits? >> i don't think>> economics -- would you like to? i don't think economics alone provides an answer to this. i have only read the wall street journal's accounts of it, i've not seen the draft, but the account said they would study our trade agreements, to the extent that they have been adequately enforced. the particular trade areas of individual countries -- that sounds to me an awful like the annual report of the u.s. trade representative's. peter does not have much staff, they have him in the eisenhower building. i understand if they run out of space there they will move to colorado. [laughter] that reflects why this is happening, not to be cute. there is a tug-of-war in this administration between a national economic council on the one hand and ross and navarro on

the other hand. this sounds like booting it a bit. that's what i think is going on, they are booting the issue. now, whether they will have an impact comes down to discussions with china. mr. trump does not seem to quite understand that you cannot come to town and make everybody your enemy. a little rand paul -- the little rand paul then expect him to help you one health care, then jump on conservatives and expect them to help you with taxes. the same goes to deal with foreign governments. who hasn't he insulted? but the one place where he can have an effect is where you have -- that's true but that is coming because they are making it increasingly hard to be nice with them. really the only place he can have an impact is some kind of bilateral -- where he has a lot of leverage. that would be with mexico for with china.

i do not think that will happen with china that may be the same as well. my feeling is the only way he will have an impact is in a -- theal discussion whole thing blowing up. that could be the chinese. i do not see him changing the whole world on the basis of being angry with the whole world. it is like me trying to think on the whole economics profession. [laughter] it doesn't work very well, but i do not have to be president of the united states to get results, ok? >> rob? >> peter is exactly right about one thing. [laughter] that is ustr does this every year. not only that, every administration does it again. find examples,

which u.s. negotiators can take to other countries and receive a concession in some negotiation on the basis of particular behavior that has been uncovered. not that it has any effect on the trade deficit. again it can affect the distribution of the trade deficit but not its size. the one thing we know about this particular administration is that if it gets its way, the u.s. trade deficit will rise sharply. the reason we know that is , u.s.e if it gets its way savings will fall substantially, because the u.s. budget deficit will rise substantially. >> carolyn did you want to say something? >> that is how i started my comments, bilateral do not matter. right now the fiscal deficit is

what we need to worry about for the trade deficit. , it isto say this again much more about fiscal policy or other policies to do with savings and investment. i want to make one comment about china, we talked about this bilateral with china. because of supply chains, our trade with china is not just china, it is factory asia. some of the trade deficit with have is, just like we factory north america and europe has factory europe, they have factory asia. parts and components will come to us. because trade is measured in growth and not value added, we end up with a big deficit with china. it is actually quite a bit more complicated than that. >> one of the things about your thetion, what struck me is fact that, at least in the draft circulated of what will be studied on the straight deficits, it missed a whole

bunch of factors that were being differenthere, aspects of trade policy. some of these broader issues which have a bigger impact were not even in their list of things to look at. one question i have is, is this from thebe a real bottom of the country deficits to understand them in the sense that it was discussed here? or suggest a hit-list of favorite topics? >> other questions? one year, when there, one there. what we will do is, ask the questions, then we will have the panelists have one less shot at them, ok? questions, we have one there, i thought there was one over here someplace. it is hard to see with the lights -- all right there, you are right. my doctoral dissertation was of u.s., the impact fiscal policy on the composition

of our exports, written 30 years ago. to ouralso stood up current president when he was a candidate and said to his face, we do not have the worst trade negotiators in the world, sir. he looked startled and turned to the next person. the most important point i have heard this morning is one i wish were better understood. that is that what is really changing as the whole nature of supply chains. if you build buildings or pipelines and say, all the components have to be american, that's an easy policy to articulate whether it is good or not. changed the nature of where production is and where the parts are made and how they are traveling around the world, how can you incorporate any understanding of that into any part -- policy articulation so the public begins to understand it? >> ok.

an argument that these big trade imbalances are driven by key countries, namely china and germany. more or less, structuring or clicking their economies so that they restrain consumption, therefore they have a big capital surplus but has to go anywhere and to into the u.s., and that drives the big trade deficit. i wonder if you have comments on that. >> ok, and then this last question here. i would like to commit to being example that peter said repeatedly about the 25 years old on his couch, protected by ,bamacare, having food stamps

watching espn. i absolutely do not see how this will affect it. economic -- byof the u.s. -- decisions by the u.s. government that could happen, but i do not see what trade policy has to do with that guy. >> thank you. speaking quickly, to each of you , respond to any or all of those questions. i would likeg >> to start with the first, i completely agree. supply chains and trade are so important. --have seen that with the companies coming out saying wait, if we lose mexico, we will not be able to compete in the global economy. the way to explain it to the public are these pictures i have showingttle arrows

where all the components are coming from. it is like the picture you might see of a vodka trump showing where all of her jewelry and close are from and how much they cost, except this is a picture of an actual product showing all of the parts and components we need to make the products. so you cut off the wiring harness and a car which comes pretty much exclusively from $200o, well, there will be order for more your power is going to cost. we need all of these parks and components. it is really at the companies for make these products need to come out and develop pictures like that. to respond to the second question, countries are free to organize themselves in ways that

beat -- meet the goals they want to achieve. if a society decides that what they are going to have is less exporttion and more driven growth, through regulation, and the society accepts that, that is their right. i don't have any problem with that. we are defining a different kind of society, one with open markets and an open economy. driven by innovation. that is what we are comfortable with. again, however china organizes them self, or however -- korea veryized itself in a highly organized strategy that

learnedrt driven, china an enormous amount from korea. korea has had enormous success. they organized it -- themselves, it will much affect our trade deficit, our overall trade deficit. we keep on saying this, but we keep on going past it. it may affect the distribution not affectit does the size. with,erfectly satisfied much more satisfied with following the american model and american values for how to to trye the economy than to quote unquote compete with china, a country with per capita income one tons of hours in a figure in ae

bilateral trade deficit. >> let me just add one thing to what robert said that has been forgotten in this whole discussion when we talk about -- china brought 500 million people out of poverty over the last 20 years through their policies. that is something to be celebrated in the world. they were living under two dollars a day. that's not the case anymore. celebrate thatly if we had not true for millions of americans into poverty already. pennsylvania would not look the way it does right now. but with regard to change changing the trade deficit would affect those workers that are not working, trade policy, ok? if we could maneuver trade policy in such a way to persuade the chinese to be less protectionist so we have less of a bilateral trade deficits with

china, we would have more people working. in turn that would reduce our physical deficits not increase it. depending on how we did it -- i want to be clear about this. i am not in favor of shutting down trade with china. i'm in favor of trying to leverage them to be less detection is, that could imply us selling the more stuff as well as making more stuff here. work --ld put people to there would be fewer people on people ons, fewer medicaid. last i did the math that reduces our fiscal deficit, our savings deficit, it does not increase it. policies and that china affect our physical deficit just as they affect our trade deficit and the reverse. it can run in either direction. trade policy would affect that. one of the things that has come throughout this discussion and certainly, the administration has not helped themselves, is to do a speaking tour with the

rhetoric of the principal, is that the policy has been seen in the most truck a in terms. we will shut down trade with china, they will throw up a huge permanent tariff, and it will not be there for the purposes of getting a better deal. with the a better deal country that is so large and significant that our -- we will have an effect on our finances reduce our savings deficit, and i would suggest that both economies longer-term will grow more rapidly than they are right now. peternk you rob, carolyn, , very thoughtful discussion. think the audience. peter, everybody for your questions. thanks to the panel. this is the kind of lively discussion we were hoping to have, very grateful to all of you. we will be addressing the issue of supply chains in the future, third our next initiative.

we hope you will come to that event and watch what we are writing about and circulating on our website, america's trade policy.com. thanks again to the panel and to all of you. [applause] [chatter] ♪ >> c-span, where history unfolds daily. as a79, c-span was created public service by america's table -- cable television companies and is brought to you today by your cable or satellite provider. ♪ >> the week ahead in congress includes votes from the senate judiciary committee and on the senate floor on the confirmation of president trump's nominee to the supreme court. judge neil gorsuch. we have an update from a capitol hill